Tackling The Inconvenient Truth

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Capitalism and communism aren’t a solution for sustainable growth. India needs to think beyond yesterday’s ideologies

Arun MairaArun Maira, Senior Advisor, BCG India

“The romance of democracy is that somehow the result will come out the way you want, but everything we know about democracy is that the result comes out the way the people want.”
John Mueller

WHEN THE votes were counted on May 16, the Congress party was declared the clear winner. On May 18 morning, the Sensex soared by 2110 points, the highest single-day rise in its history. A business newspaper described it as a ‘21-gun salute’ for Manmohan Singh. It splashed the gushing relief of Indian business leaders that the country would have a stable government with Manmohan Singh at the head. Newspapers also commented on the low voter turnout in South Mumbai, which has the highest concentration of leaders of investment firms and businesses. Therefore it was not their votes that had made the Congress victorious, but the votes it received from the rest of the country. Analysts explain that these voters were pleased with Congress’ concern for the ‘aam aadmi’, along with the farmers’ loan waiver scheme and the NREGA. Therefore, while captains of business and finance may have expectations from the government, the government’s primary concern would be what its voters want.

Photo: Shailendra Pandey

In West Bengal, after three decades, the longest ruling elected communist government in the world was beaten. Budhadeb Bhattacharya’s communist government had been hailed by industrialists as pro-industry, and they had declared its fierce opponent, Mamata Banerjee, as anti-industry. This misrepresents what she was fighting for, and cannot explain why she won. In a television analysis of the West Bengal results, an anchor kept referring to Mamata Banerjee as ‘antiindustry’. A panelist reminded him that she had declared that she was not anti-industry but was fighting for fairness in the process of acquiring land. Inclusion in the process of economic growth and fairness is what people want. However, Right-leaning economists and journalists will label anyone who takes up the concerns of aam aadmi as a Leftist (a bad word in their language): thus Mamata is now characterised as even further left than the Left! When the farmers’ loan waiver was announced, many Right-leaning economists and their business followers declared it a ‘socialist’ idea that would ruin the economy. They cooled off their criticism when loans of bankers on Wall Street began to be excused to save the US economy.

It was the aam aadmi that voted for the Congress. Not the leaders of investment firms and businesses

ECONOMICS IS going through an ideological crisis. History shows that neither capitalism nor communism has found a solution for sustainable, inclusive, and rapid economic growth. Indian thought leaders must go beyond yesterday’s ideologies and examine some underlying concepts that drive economic policy. Here are six such concepts:

The first is the purpose of government in society. The debate between the Republicans and Democrats in the US is often couched as a contest between those who want more government and those who want less. In our country too, those who want more government spending are called socialists and those who want to reduce it are free marketers. This is a false debate. In the last few weeks, even US Republicans have been turning to government to stabilise markets. Therefore, the substantial debate must be about how citizens expect government to improve society and the economy.

The key to India’s progress is platforms for open-ended dialogues that are not stuck in old ideologies

The second is the idea of ‘free’ markets. According to the view that was gaining ascendancy around the world, markets must be free from barriers and regulation. But markets must also be fair. Therefore, the question is: how should markets be regulated to ensure fairness? Who makes the rules? Are the needs of those not yet in the markets respected or are the rules set by those who already dominate the markets?

The third is the assumption underlying economic theories that human beings are purely rational and selfish actors. The truth is that human beings are emotional and social creatures. They do not live and work for money alone. This is an inconvenient truth for economists because they cannot quantify such emotions in their mathematical models. They treat such conditions and human needs as ‘externalities’, and hope that people will pay less attention to them so that their models will work.

The fourth is the conflict between efficiency and equity. Michael Spence along with other Nobel Laureates on the Commission on Growth and Development end their thoughtful report on ways to increase GDP of countries with a deep concern for increasing inequality. They say it is a problem begging for an urgent solution. Whereas size and efficiency, which are simpler to quantify, are central to economic models, equity is a fuzzier concept. Therefore, economists need new concepts and tools.

The fifth is the concept that development is an exercise in economics to be guided by economists. In this concept, democratic movements for freedom from social discrimination and political oppression are seen as unnecessary interferences to the orderly progress of the economy. However, nations are not just economies and their achievements cannot be assessed only by the growth of their GDP. Human development is a broader exercise of progress towards multiple freedoms, as Amartya Sen says. Freedom from material poverty of course, but also social and political freedoms.

The sixth is the concept of fairness. One of the greatest steps in the evolution of humanity is the desire for fairness in the way societies are governed. This idea, along with the evolving idea of inviolable human rights, has gathered strength in the last century with the spread of democracy, and civil society movements. But fairness is a contested concept. Is it fair that a child should carry the handicap of the circumstances in which it is born? On the other hand, aren’t objective evaluations of capability the fair way to judge merit?

India needs a social and political consensus about the philosophy that will take it to its tryst with destiny. Reform policies must follow from this. Healthy democracies require not just elections. They also require platforms for dialogues to reconcile differences. The democrats of ancient Greece conducted such debates in city plazas. In India, the Emperors Ashoka and Akbar created councils for dialogue between people with different beliefs. Institutions for public dialogue in the Indian democratic state are not functioning at this time. Parliament now meets less and less, and when it does, its proceedings degenerate into shouting matches and walk-outs. Discussions in our media are ‘big fights’ for entertainment to attract advertisers. Political differences are being settled on the streets. The key to India’s progress is platforms for open-ended dialogues that are not stuck in old ideologies and second-hand ideas. One prays with Rabindranath Tagore that amongst India’s thought leaders, ‘the clear stream of reason will not lose its way in the dreary desert sand of dead habit’.

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